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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Entrepreneurs’ Relief: shares or securities: Enterprise Management Investment Scheme shares

TCGA92/S169I (7A) to (7R) and FA13/S64 and Sch24 EMI shares may qualify for relief

For disposals on or after 6 April 2012 it is possible for shares acquired under the EMI scheme to qualify for Entrepreneurs’ Relief where the “personal company” requirement is not met.

To qualify for Entrepreneurs’ Relief the share must -

  • have been acquired on the exercise of a qualifying option granted under the EMI scheme (ESSUM50000+),
  • have been acquired since 6 April 2012 but see below regarding shares acquired before 6 April 2013,
  • be disposed of at least one year after the grant of the option,


  • The individual must have been an employee of the company, or a company in the same trading group throughout the one year period ending with the disposal.

The legislation and this guidance refers to EMI shares issued from 6 April 2012 that are eligible for Entrepreneurs’ Relief as “relevant EMI shares”.

Share reorganisations

However, where there is a company reorganisation during the time an EMI option is held, such that there is a replacement option within the EMI rules [cross ref], then the one year period referred to above may include the two (or more) options and the employment requirement is to be met by reference to the corresponding company or group.

Where relevant EMI shares have been issued and are replaced by others in a share reorganisation then the new shares will also be eligible for Entrepreneur’s Relief where either of the following conditions is met:

  • where there is a reorganisation of shares of a single company within TCGA92/S126, [TCGA92/S169I(7F)(c)(i)], or
  • where the EMI shares are exchanged for shares in another company and the exchange meets the conditions needed for the EMI rules for replacement option to apply [TCGA92/S169I(7F)(c)(ii) and (7G)].

For other types of share reorganisation, the replacement shares will not attract Entrepreneurs’ Relief as relevant EMI shares. Note that an election may be made under TCGA92/S169Q which would have the effect of disapplying the usual “no disposal” treatment of TCGA92/S127 so as to trigger gains against which Entrepreneurs’ Relief may be claimed. Note also that the relief may also be claimed against gains triggered by the effect of TCGA92/S128 in cases where the individual receives consideration in addition to an issue of new shares.

Share identification

The usual share identification rules are modified so that relevant EMI shares will not form part of a “share pool” under TCGA92/S104 and also they will not be identified with any other shares for the purposes of the rules that apply to same day transactions or where shares of the same class are acquired within 30 days of a disposal, TCGA92/S105 and TCGA92/S106A(5).

Instead, for disposals by an individual of shares of the same class on or after 6 April 2013 of relevant EMI shares will be identified in the following way -

  • Firstly, with shares acquired on the same day, but applying the rule in TCGA92/S105 separately to relevant EMI shares and other shares of the same class.
  • Secondly, with shares acquired within the 30 days following the disposal, again applying the rule in TCGA92/S106A(56) separately to relevant EMI and other shares of the same class.
  • Then with relevant EMI shares on a “first in, last out basis”, because this maximises the holding period.
  • Lastly, with the other shares of the class, which would normally form a share pool under TCGA92/S104.

EMI Shares acquired during the 2012-13 tax year

Treating EMI shares acquired in 2012-13 as eligible for Entrepreneurs’ Relief causes a complication in that any disposal of shares of the same class in that year would have been a part disposal of the TCGA092/S104 “pool”. If the EMI shares were automatically treated as eligible for Entrepreneurs’ Relief then the calculation of gains for that year would be affected retrospectively. Therefore the following rules apply for EMI shares acquired in 2012-13 -

  • where there were no disposals of shares of the same class during 2012-13, the EMI share acquired in that year will automatically be treated as relevant EMI shares, eligible for Entrepreneurs’ Relief,
  • where there were disposals of shares of the same class during 2012-13, the individual may elect for the EMI share acquired in that year to be treated as relevant EMI shares, eligible for Entrepreneurs’ Relief.

Where an election is made the effect for disposals made during 2012-13 is that -

  • relevant EMI shares acquired in 2012-13 will be treated as being disposed of after any other shares of the same class, so as to obtain the benefit of the relief on disposals from 6 April 2013,
  • where any such shares that are identified with a disposal, it is on a “last in, first out” basis, so as to carry forward the shares with the longer holding periods.

Note that this rule also applies where EMI shares issued in 2012-13 were subject to a reorganisation that meets the conditions for the new shares to be treated as relevant EMI shares [see above].

Election procedure

There is no prescribed form but under the normal self assessment rules an election should be made as part of a return where a notice to file has been issued.

The time limit for making or revoking an election is the filing date for the 2012-13 return. The rules that would allow for later amendments to claims and elections do not apply.

Example of effect of election

At beginning of 2012-13 individual has holding of 100 shares at a cost of £80. In 2012-13 acquires a further 50 shares on exercise of EMI options at cost of £50. Disposes of 80 shares in 2012-13 for proceeds £120.

No election - shares are added to pool which becomes 150 shares at cost £130.

Gain is £120 - (80/150 x £130) = £120 - £70 = £50.

Election made - shares are kept from pool and disposal is identified with pool.

Gain is £120 - (80/100 x £80) = £120 - £64 = £56. But the 50 EMI shares potentially qualify for ER.